General

Office Depot, Inc., together with our subsidiaries, is the largest supplier of office products and services in the world. We sell to consumers and businesses of all sizes through our three business segments: North American Retail Division, Business Services Group, and International Division. These segments include multiple sales channels consisting of office supply stores, a contract sales force, Internet sites, and catalog and delivery operations. Each of these segments is described in more detail below. In 2000, we refined our segment definitions to better reflect our current management responsibilities. Segment information for 1999 and 1998 has been restated to reflect these changes. Also, in accordance with the consensus reached in Emerging Issues Task Force (“EITF”) 00-10, we reclassified delivery income from store and warehouse operating and selling expenses to sales for all periods presented in this Annual Report. We operate on a 52-or 53-week fiscal year ending on the last Saturday in December. Our results for the fiscal year 2000 contained 53 weeks, all other years contained 52 weeks.

This Management’s Discussion and Analysis (“MD&A”) is intended to provide information to assist you in better under-standing and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our Consolidated Financial Statements and the Notes to those statements. This MD&A section contains significant amounts of forward-looking information, and is qualified by our Cautionary Statements regarding forward-looking information. You will find Cautionary Statements throughout this MD&A; however, most of them can be found in a separate section immediately following this MD&A. Without limitation, when we use the words “believe,” “estimate,” “plan,” “expect,” “intend,” “anticipate,” “continue,” “project,” “should,” and similar expressions in this Annual Report, we are identifying forward-looking statements, and our Cautionary Statements apply to these terms and expressions.

North American Retail Division

Our North American Retail Division sells office products, copy and print services and other business-related services under the Office Depot® and the Office PlaceT brands through our chain of high-volume office supply stores in the United States and Canada. We opened our first office supply store in Florida in October 1986. From our inception, we have been a leader in the retail office supplies industry, concentrating on expanding our store base and increasing our sales in markets with high concentrations of small-and medium-sized businesses. As of the end of 2000, our North American Retail Division operated 888 office supply stores in 47 states, the District of Columbia and Canada. Store activity for the last five years has been as follows:

The decline in the number of stores opened in 1997 was the result of our proposed merger with Staples, Inc. (“Staples”). In September 1996, we entered into an agreement and plan of merger with Staples. The proposed merger was blocked by a preliminary injunction granted by the Federal District Court at the request of the Federal Trade Commission, and in July 1997 we announced that the merger agreement had been terminated. During this period of uncertainty, several of our key employees in the real estate area left the Company. After the merger discussions with Staples were terminated, we re-staffed our real estate department and re-launched our store expansion program. Many of the locations opened during this period of aggressive expansion have not performed to our expectations. In 2000, we scaled down our expansion plans and announced the closing of 70 locations in the first quarter of 2001 (see One-time Charges and Credits).

In 2001, we plan to add approximately 50 new retail stores, most of which will be located in areas in which we currently enjoy strong market positions, with the balance in under-served markets. In future years, we expect to continue this approach to retail store expansion, with an emphasis on market density in order to leverage advertising dollars and cross-channel opportunities to create a seamless customer experience across all channels. All new stores will incorporate a more efficient platform of approximately 20,000 square feet and will feature a more interactive customer experience.

Business Services Group (“ BSG”)

In 1993 and 1994, we expanded into the contract office supply business by acquiring eight contract stationers with 18 domestic customer service centers and a professional sales force. These acquisitions allowed us to enter the contract business and broaden our commercial (primarily catalog) and retail delivery businesses. In 1998, we expanded our direct mail business through our merger with Viking Office Products (“Viking”). Today, BSG sells office products and services to contract and commercial customers through our Office Depot® brand and Viking Office Products® brand direct mail catalogs and Internet sites, and by means of our dedicated sales force. Customer service centers (“CSCs”) are warehouse and delivery facilities, some of which also house sales offices, call centers and administrative offices. Our CSCs perform warehousing and delivery services on behalf of all segments of our business.